The gross national product of the United States was $9.2 trillion in 2000;
semiconductors accounted for $204 billion, or about 2.2 percent of that total.
Semiconductor manufacturing is a bigger part of the U.S. economy than mining,
communications, utilities, or agriculture, forestry, and fishing. The U.S.
Bureau of Labor Statistics says 284,000 Americans are directly employed in the
semiconductor industry; 52,000 of those are semiconductor processors, or people
in the so-called "bunny suits."

The top 10 U.S. airlines put together made only half as much money as
semiconductor makers. Intel and Texas Instruments sold more than Coca-Cola and
Pepsi. Every one of the 15 corporations receiving the most patents in 2000 was
in the semiconductor or computer business. San Jose, Californiathe capital
of Silicon Valleyled the nation in highest average annual salary in 2000,
outdistancing the second-ranked city (San Francisco) by a hefty 28 percent
margin. Most important, the average Nintendo game has more computer power than
NASA had for its moon landings.

In 2001, there were about 60 million transistors built for every man, woman,
and child on Earth. By 2010, the number should be close to 1 billion transistors
per person.

Worldwide Production of Semiconductors

Excepting the annus horribilis of 2001, the worldwide market for semiconductors
recently passed $200 billion per year. That's about the same as the national
output of Saudi Arabia or Switzerland. Figure
5.1 shows month-by-month sales of semiconductors for 312 consecutive months
(26 years), from the beginning of 1976 through the end of 2001. Note that these
are monthly, not yearly, figures, so sales have been in the range of $10 billion
to $15 billion per monthor $400 million per dayfor several years.

Figure 5.2 shows
the same data graphed yearly, so the vertical scale is 10

Sales by Revenue

The year 2001 saw the worst downturn in the comparatively brief history of
the industry, with total revenue falling by an astounding 32 percent from the
previous year's level of over $204 billion. Memory chips led the decline,
with sales falling by half, but all sectors suffered.

In good years and in bad, the proportion of revenue contributed by each type
of component remains about the same. Microprocessors, microcontrollers, digital
signal processors (DSPs), and peripheral chips account for about one-third of
the total revenue (but not of the total unit volume). The next largest contributor
to vendors' coffers is memory. DRAMs, SRAMs, and ROMs of all types account
for 20 percent to 25 percent of the revenue share. Analog components and miscellaneous
digital-logic devices each contribute 15 percent to 17 percent to the total.
Discrete components, such as resistors and capacitors, and optoelectronic components,
such as LEDs and optical sensors, both make single-digit contributions. These
segments are summarized in Figure
5.3. Bear in mind that, barring the first few years of the 21st century,
every percentage point represents about $2 billion in revenue. That's not
small potatoes.

Figure 5.3 Total financial contribution by type of semiconductor. Courtesy
of World Semiconductor Trade Statistics. Used with permission.

Sales by Unit

Using data from 2001 as our yardstick, the huge majority of unit sales are
in discrete components. Like the insects of the semiconductor realm, these tiny
devices are almost invisible, even to industry insiders. At an astounding 200
billion units per year, it's clear that diodes, transistors, rectifiers,
and the like are ubiquitous. (See Figure
5.4.)

Figure 5.4 Total unit volume contribution by type of semiconductor.
Courtesy of World Semiconductor Trade Statistics. Used with permission.

Next up, but almost an order of magnitude lower in unit sales, are the analog
components. Analog amplifiers, D/A and A/D converters, voltage regulators, and
numerous other nondigital components make up this category.

Optoelectronics are not far behind their analog cousins, including LEDs,
laser diodes, CCD image sensors, and other things that light up. The majority of
optoelectronic components are used in consumer electronics, making up the LED
displays of alarm clocks, the laser diodes of CD players, and the
"film" of digital cameras.

Miscellaneous digital logic components take fourth place. This category
includes low-end logic chips such as AND gates and OR gates, but also much
higher value devices such as programmable logic (CPLDs and FPGAs) and custom
ASIC chips. These latter chips tend to be expensive so they give the logic
segment a bigger slice of the revenue pie than they do of the unit-volume
pie.

It's interesting that the number of microprocessors and microcontrollers
sold is not much lower than the number of memory chips. Because every
microprocessor typically requires several memory chips as "support"
components, you'd expect this ratio to be more lopsided. Yet the number of
chips in the CPU and DSP category is only about 20 percent smaller than the
number of memory chips. In part, this is because the microprocessor category
also includes some peripheral controllers, which aren't really
microprocessors and don't require external memory chips. Many low-end
microprocessors and microcontrollers have some memory of their own built in, so
they often don't need extra memory chips, either. The high volume of these
one-chip microcontrollers balances out the relatively few high-end
microprocessors that need lots of extra memory.

Taking another big jump down the volume chart, we see the sensors. This
category includes silicon acceleration sensors for automobile airbags,
temperature sensors used in cars and industrial applications, magnetic sensors,
and other specialized chips.

Bringing up the rear are the so-called bipolar components. Bipolar components
aren't really a separate category from sensors, microprocessors, and so
forth, but they are manufactured using a different process than all the other
devices we've covered. Market research usually classifies them separately
for that reason. As you can see, there are very few bipolar components made or
sold, and their numbers are dwindling slowly.

Average Selling Prices

The average selling price (ASP) of a class of components can be both useful
and misleading. It is useful because it gives us an idea of what the high-value
components are and where the most value is being added. It is misleading because
the statistics group many different types of components together, and not all
chips within each category have similar selling prices. The mix of components
can significantly skew the perception of the value of an entire segment.

Having said all that, the discrete components clearly have the lowest ASP, at
about $0.06 per device. Some components, such as microwave or radio frequency
(RF) transistors, raise this average while low-value components, such as diodes
and rectifiers, lower it. Still, when discrete components account for nearly
half of the unit volume but only about 8 percent of the revenue, you know
you're dealing with inexpensive parts.

Optoelectronics are the only other major category of components with ASPs
under half a dollar, at $0.37. Bipolar components and sensors both hover at
about $0.50 each. Then there's a modest $0.75 for analog components, as
Figure 5.5 shows.

Large-scale digital chips clearly command a price premium. Part of this is
perception and part is actual component cost. Some large-scale digital chips,
such as FPGAs and ASICs, have huge development costs that must be amortized
across comparatively few components. Other logic devices in this same category,
such as individual logic gates, are commodities, sold almost by the pound.
Overall, this category commands an ASP of $1.50.

Although memory chips are sometimes characterized as the semiconductor
commodity, their prices suggest otherwise. The ASP for all memory chips in 2001
was $3.25, a fair number, but one that is very volatile. Because so many memory
chips are interchangeable and demand is so cyclical, price competition is
ferocious. Memory production might be unconscionably profitable one year and
diabolically costly the next. Each downturn tends to shake out one or two memory
vendors, slowly reducing their ranks.

Figure 5.5 Average selling price by major category of semiconductor. Courtesy
of World Semiconductor Trade Statistics. Used with permission.

At the top of the pricing chain are, of course, the microprocessors. Intel
didn't get to its exalted position by making commodity components. Intel's
well-known PC processors account for an increasingly small proportion of total
microprocessor unit sales, but its success nonetheless pumps up the average
for the whole category. The only thing preventing the $6.12 ASP from being contaminated
by this anomaly is the enormous unit volume of the other components.

Average Microprocessor Prices

The ASP for microprocessors and related components is so lopsided that it
warrants further examination. The data in Table 5.1 are once again taken from
the World Semiconductor Trade Statistics (WSTS) organization for the calendar
year 2001. Although overall semiconductor sales were badly depressed in that
year, the ratio of ASPs and the relationship among components is the same in any
year.

In Table 5.1, the top line (32-bit microprocessors) represents only a few
vendors' components. Specifically, it is overwhelmingly Intel's latest
generation Pentium processors used in PCs. This segment also includes AMD's
PC-compatible processors and the PowerPC processors made by Motorola and IBM,
primarily for Apple's Macintosh computers. Macintosh commands about a 4
percent market share of desktop computers compared to 95 percent for the
"Wintel" PC, so the unit volume (and hence, the ASP) is comparatively
unaffected by Macs.

Table 5.1 The average selling price for microprocessors, microcontrollers,
and DSPs varies considerably. The top-end PC processors skew the ASP for the
category with their abnormally high prices. Courtesy of World Semiconductor
Trade Statistics. Used with permission.

Device
Type

Average
Selling Price

Microprocessor,
32-bit

$92.89

Microprocessor,
16-bit

$6.87

Microprocessor,
8-bit

$3.72

Microcontroller,
32-bit

$7.57

Microcontroller,
16-bit

$4.23

Microcontroller,
8-bit

$1.44

Microcontroller,
4-bit

$0.78

Peripherals

$6.08

Digital
signal processor (DSP)

$6.44

Average
price for category

$6.12

Other desktop computers, such as engineering workstations from Sun
Microsystems, Silicon Graphics (SGI), Hewlett-Packard, and others merely
represent rounding errors in this segment. Their unit volumes are "in the
noise margin," as electrical engineers might say. As proud as these
computer companies are of their high-end microprocessor technology, those
processors have next to no effect on the economy of semiconductors.

With an ASP fully 13 times higher than the average for the rest of the
categorywhich is itself the highest in the semiconductor
industryit's no wonder that Intel attracts so many imitators.
Intel's processors are difficult to clone because of their aging, baroque
design. Indeed, it's very likely Intel itself would have abandoned the
product line years ago had not IBM serendipitously chosen it for its first IBM
PC back in 1981. Intel's Pentium family has succeeded completely in spite
of its technology, not because of it.

Geographic Breakdown of Production

For geographic and political purposes, semiconductor manufacturing is generally
divided into four major regions: North America, Europe, Japan, and Asia and
the Pacific region, as shown in Figure
5.6. Roughly speaking, production is evenly divided among these four areas,
with North America (mostly the United States) maintaining a slight lead. Throughout
the late 1980s and 1990s and into the following decade, the United States produced
a little more than 30 percent of the world's semiconductors (measured by
revenue), with the other three regions each accounting for about 20 percent
to 24 percent of the total. During those two decades, Japan's share of
production eroded gradually, losing ground mostly to vendors in Taiwan, Korea,
and Singapore.

Figure 5.6 Percentage of production by geographic region, 19822000.
Courtesy of World Semiconductor Trade Statistics. Used with permission.

Because these statistics measure revenue and not units, they're skewed
toward higher priced parts. Thus, the United States is somewhat overrepresented
because of its preponderance of microprocessor companies. Texas Instruments,
Motorola, Intel, AMD, and the dozens of other microprocessor, DSP, and
microcontroller companies based in the United States contribute revenue out of
proportion to their impact in simple unit volume.

The United States consumes most of its own chips, swallowing three-quarters
of its domestic production. Table 5.2 shows that Europe and the Far East show
somewhat less provincialism, but Japan keeps a generous 82 percent of its chips
within its borders.

The European and Far Eastern regions both ship about half of their
semiconductors to the United States. The exception again is Japan, which gets
only about 20 percent of its revenue from North American customers; the rest
stays in the country.

Table 5.2 Average consumõption of domestic semiconductor production,
19922000. Courtesy of World Semiconductor Trade Statistics. Used with
permission.

Region

Percent

Asia

28%

Europe

30%

Japan

82%

North
America

74%

If we examine the data from the demand side, shown in Figure
5.7, North America buys about half of the world's production of semiconductors.
Japanese consumption dropped in the late 1990s because of the country's
economic recession, whereas other Far Eastern and European countries increased
consumption slightly. The rise of the Asia and Pacific region vendors'
percentage of consumption was not merely a statistical side effect of the Japanese
reduction. These countries really did purchase more chips on an absolute revenue
basis, not simply in relation to Japan's shrinking share.

Figure 5.7 Consumption of semiconductors by geographic region, 19822000.
Courtesy of World Semiconductor Trade Statistics. Used with permission.